A Black female attorney could not be forced to arbitrate her workplace bias claims under an arbitration provision in the employer's long-term cash bonus plan, a California appeals court ruled. The attorney's claims did not fall within the scope of the arbitration agreement, which explicitly only covered disputes about pay arising under the company's bonus plan, the court said.
In 2011, the attorney joined an investment management company as a vice president in its legal department. During her employment, she alleged, the company discriminated against her based on race, gender and pregnancy by denying her promotions and paying her less than similarly situated white male employees.
In 2019, she filed a lawsuit against her supervisors and the company, claiming race, gender and pregnancy bias. The defendants sought to compel arbitration.
The arbitration provision was part of a long-term cash bonus plan the company offered to its more highly compensated employees. Under that plan, eligible employees could elect to defer a certain percentage of their overall compensation for a three-year term, after which it was paid out as a bonus. Depending on the company's operating profit, the bonus could be as much as 135 percent above the participating employee's wage contributions.
After several salary increases over the years, the plaintiff became eligible to participate in the bonus plan in 2016, and she elected to participate in 2016, 2017 and 2018. According to the defendants, in doing so, the plaintiff agreed to the plan's terms and conditions, including its provisions on arbitration.
With regard to her discrimination claims, the plaintiff opposed the defendants' motion to compel arbitration. The trial court denied the defendants' motion, and they appealed.
Contract Law Principles Apply
The court first explained that California contract law applies to determine whether the parties formed a valid agreement to arbitrate. General contract law principles include: 1) the contract's words must be understood in their ordinary and popular sense; 2) contested provisions are considered in their context, not in isolation; and 3) the whole contract must be taken together, giving effect to every part, if reasonably practicable, with each clause helping to interpret the other.
The court then noted that the bonus plan documents provided that any plan participants who believed they were entitled to a benefit under the plan that had not been timely paid could file a claim under the plan. Such a claim would be subject to final and binding arbitration. The documents then set out rules for how that arbitration would proceed.
The court concluded that the bonus plan's arbitration provision by its own terms applied only when a participating employee asserted entitlement to a benefit provided under the plan that had not been paid.
In her lawsuit, the court noted, the plaintiff did not claim any unpaid benefits. To the contrary, the plaintiff conceded she was paid everything she was owed under the plan. Because her claims for pay disparity and promotion bias did not arise from the company's failure to pay benefits owed under the plan, they did not fall within the plan's arbitration provision, the court said.
The defendants argued that the plaintiff's complaint was related to the bonus plan because it alleged pay disparities as a basis of liability, and her pay disparity claims could not be adjudicated without reference to its terms.
The appeals court rejected this claim, noting that although the plaintiff was asserting her total compensation (including the bonus plan component) was lower than it should be, her argument was not based on any alleged miscalculation, misinterpretation, underpayment or wrongful withholding of pay due under the plan. Instead, the court said, she was claiming that the company discriminated against her because of her race, gender and pregnancies and treated her less favorably than her white male peers, which in turn impacted the amount due under the bonus plan.
Finally, the court noted that although there is a strong public policy in favor of arbitration, there is no public policy in favor of forcing arbitration of issues the parties have not agreed to arbitrate.
The court affirmed the trial court decision denying the defendants' motion to compel arbitration.
Inokon v. Pacific Investment Management, Calif. Ct. App., No. G058986 (Nov. 12, 2021).
Professional Pointer: A California law set to take effect in 2020 would have prohibited employers from requiring workers to arbitrate state-law discrimination and labor code claims. A federal court prevented the law from taking effect initially, but a September 2021 federal appellate court decision upheld the law (Chamber of Commerce v. Bonta). This ruling is currently being challenged, and for now, the trial court's decision enjoining enforcement of the law remains in effect. In the meantime, employers are encouraged to consult with counsel regarding their arbitration agreement practices.
Joanne Deschenaux, J.D., is a freelance writer in Annapolis, Md.